Sector Rotation Drives European Stocks to New Record Highs
European stock markets rallied on Thursday (July 2nd), as investors began seeking opportunities in sectors that had previously lagged behind the major rally in technology stocks. This rotation occurred as valuations of artificial intelligence (AI)-based stocks became increasingly expensive after a strong rally in recent months.
The Stoxx Europe 600 Index rose 1.4% in London mid-afternoon, hitting a new record high. The healthcare, personal care, and food and beverage sectors were the main drivers of the index's gains. Meanwhile, the technology sector led the decline, following pressure from US technology stocks.
Investors appeared to be shifting their attention to defensive and cyclical sectors that had received less market attention. This shift suggests that the European stock rally is broadening, no longer solely reliant on technology and AI companies. This trend is also supported by expectations that weaker economic data could ease pressure on interest rate hikes.
The index's gains intensified after the US jobs report came in weaker than expected. This data eased expectations that the Federal Reserve would soon raise interest rates again, thus boosting riskier assets, including European stocks.
Mark Haefele, Chief Investment Officer of UBS Global Wealth Management, believes the market rally still has room to expand. He believes investors are starting to see opportunities beyond the AI rally leaders, particularly in sectors supported by structural growth, policy support, and a better cyclical outlook.
European defense stocks are also being sought after by investors after lagging in recent months. Goldman Sachs' basket of military stocks rose 6.4%, despite tank manufacturer KNDS postponing its planned initial public offering (IPO). This increase indicates that market interest in the defense sector remains strong, supported by European military spending.
In terms of individual stock movements, Sodexo rose 7.4% after the food services company reported third-quarter results that beat expectations and raised its full-year forecast. This increase reinforced positive sentiment toward the consumer and services sectors, which are considered more stable than high-risk technology stocks.
In the technology sector, AMS-Osram was an exception. Shares of the Austrian semiconductor company surged 13% after hiring Ashkan Seyedi from Nvidia as part of its expansion strategy into digital photonics. This move is seen as strengthening the company's position in the next-generation technology supply chain.
Meanwhile, Germany's DAX index rose 2.2% after the German government approved a €10 billion annual tax break and a number of measures to strengthen the labor market. These reforms are expected to help improve the competitiveness of the German economy, which has been hampered by weak growth and high production costs.
Overall, the strengthening of European markets suggests that investors are starting to expand their search for opportunities beyond expensive technology stocks. As long as interest rate expectations ease, corporate earnings remain solid, and government policies support growth, European markets still have the potential to maintain their positive momentum. However, pressure on the technology sector remains a concern, as it could impact broader global sentiment. (arl)
Source: Newsmaker.id
